Student Loan Crisis

Categories: Education, Credit

Simply put, more and more students have no hope of paying back the loans they’ve borrowed to go to college.

Pick a middle-of-the-road-priced university. Good school, but state money is fast evaporating, so tuition and other costs are mid-way to that of the elite private universities.

Tuition: $20k a year times four. Room and board: $15k a year times four. Books, travel, other: $5k a year times four. Add it all up, and the total cost to go to one of these universities is somewhere around 160 grand. Ouch. Some of the money can be paid back via summer work, but it’s not easy to find those jobs anymore, and a lot of students grumpily have to live in their old rooms back with the 'rents, desperately hustling artisanal toothbrushes on Etsy, or moonlighting as drivers for Uber.

But let’s say 10 grand gets paid back through summer work. The interest cost on student loans is high. Why? Students are a bad risk. Tons of them don’t pay back the loans they promised to pay back when they signed the papers taking them out in the first place. 5 percent? 10 percent? 20 percent? Who knows? All that's clear is that some very large number of student loans will default, and then cost a fortune in lawyer bills to collect, if they ever get collected at all.

Is this fair to the students who actually did pay back the loans they took out? They're not responsible for those students who were unable to find gainful employment in their field of study, or those who are too, uh, preoccupied to even bother paying the loans back in the first place. Regardless, all the goody-goodies are left riding the same skyrocketing interest rates as everyone else.

Is it fair? No. Not at all. Is it real life? You bet. Isn’t that one of the first lessons they teach you in college? That life isn’t fair?

So...figure 10% interest on student loans, and here’s where things get brutal. A History-and-English major graduates from Whatever University with 150 grand in debt. They owe 15 grand a year just in interest, and the loan packages requires them to pay down the loan 10 grand a year, bringing their total annual repayment to $25,000, so that after 15 years, the loan companies can be paid off, and presumably loan the money to some other deserving student. But here’s Job Reality 101 for History-and-English majors. There are almost no jobs these days. Other than driving Uber, bartending, or convincing hotties to pay your rent by quoting Shakespeare. That is, until those jobs are taken over by driverless cars, robots, and artificial intelligence computers. And the relatively few jobs that do exist...don’t exactly pay a ton of money.

Think: 40 grand a year for starters. On 40 grand, you’ll pay say, 8 grand in taxes and other government fees…and that leaves you about 32 grand to live on and pay off your loans. But Year One you owe 25 grand on your loans…15 in interest (which is not tax-deductible, by the way), and 10 grand in principal paydown. So that leaves you, uh…7 grand to live on? Wasn’t that what you spent on haircuts, clothing, and car insurance alone? What about food? And rent? And like...anything else? Yeah. You can’t afford it. Hopefully your parents haven’t rented out your room yet.

So why is this thing called a crisis? Because loans of magnitude have continued to flow out of the various coffers that loan money to students, and the ability to repay those loans is getting worse and worse and worse. Eventually, the system grinds to a halt with massive declines in loans made. And then there are…riots? What happens when students are simply denied the ability to go to college? What will they do? Demand colleges drop tuition costs? Well, that’d be nice…but other than the top 40 or 50 colleges, most schools of higher learning are just barely scraping by. Many are committed to very high fixed recurring costs in the form of tenured professors they cannot fire...expensive building or land maintenance…insurance for, uh, creative student activity...and on and on. It all adds up, such that tuition needs to remain high just to pay the bills.

Can the government step in and pay those bills? Well, your feelings about this issue will vary with your political alignment, but that still doesn't solve the issue of rising costs, which'll keep getting higher and higher no matter who's footing the bill.

So what's our solution? The debate rages on. Our only advice is to think long and hard when picking a college major, and taking out loans for school. That means keeping your hands off eBay and Amazon...and keeping your nose in the books.

Related or Semi-related Video

Finance: What is the Student Loan Crisis...24 Views

00:00

Finance allah shmoop what is the student loan crisis Well

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simply put more and more and more students have no

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hope of paying back the loans they've borrowed to go

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to college Pick a middle of the road priced university

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good school but state money is fast evaporating so tuition

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and other costs are midway to that of the elite

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private institutions like harvard and stanford On those guys tuition

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twenty grand a year times for room and board Fifteen

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grand a year times four books travel another five grand

00:34

a year times for two green unnecessarily priceless add it

00:38

all up and the total cost to go to a

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middle of the road price university these days all in

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while somewhere around one hundred and sixty grand ouch Some

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of the money can be paid back via summer work

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but it's not easy to find those jobs anymore right

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Certainly in california and a lot of students grumpily have

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tto live in their old rooms back with parents desperately

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hustling artisanal toothbrushes on etsy or moonlighting as a driver

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for uber or lift if you like tips But let's

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say ten grand gets paid back through summer work each

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Summer the interest cost on student loans is high Yeah

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Why Well students or a bad risk How would you

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like to loan money to a student Tons of them

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don't pay back the loans they promised to pay back

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when they signed the paperwork taking them out in the

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first place Five percent interest rate ten percent Twenty percent

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what's the right number Yeah who knows Well all that's

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clear is that some very large number of student loans

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will default and then cost a fortune in lawyer bills

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to collect if they ever get collected at all How

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would you feel being the bank who loaned all those

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bad loans to people who majored in french literature and

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couldn't get a job Well is this fair to the

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non dead beat students who actually did pay back the

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loans they took out They're not responsible for those students

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who were unable to find gainful employment in their field

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study or those who are teo you know preoccupied even

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bother paying loans back in the first place Regardless all

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the goody goodies air left the riding the same skyrocketing

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interest rates is everyone else Why Because you have to

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Charge the non deadbeats mohr interest to pay for the

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deadbeats who didn't pay back their loans Is that fair

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No not at all Is it really life You bet

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isn't that one of the first lessons they teach you

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in college that life isn't fair Well so figure ten

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percent on student loans and here's where things get brutal

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ten percent interest Ah history and english major graduates from

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whatever university with one hundred fifty grand in debt just

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saying they owe fifteen grand a year just in interest

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and the loan packages require them to pay down the

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loan and ten grand a year because they gotta get

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their principal back at some point bringing their total annual

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repayment to twenty five thousand dollars so that after fifteen

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years the loan companies can finally be paid off and

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presumably loan the money to some other deserving student But

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here's Job reality 10:14 history and english majors and we

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know this here It's come up because way hire them

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well Other than its mup there are almost no jobs

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for history and english majors today other than driving uber

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or being a barista may be bartending or you know

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convincing hotties to pay your rent by quoting shakespeare about

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that not a real job and no union and all

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that is said you know until those jobs were taken

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over by driverless cars and robots and artificially intelligent computers

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pitching woo for the shakespeare quote thing and the relatively

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few jobs that do exist don't exactly pay a ton

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of money like think forty grand a year for starters

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So on forty grand you'll pay say make grand in

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taxes and other government fees That leaves you about thirty

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two thousand dollars toe live on and to pay off

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your loans but you're one you owe twenty five grand

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on your loans Fifteen is interest which is not tax

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deductible by the way and ten grand is in principle

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Pay down So that leaves you seven thousand bucks toe

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live on Was that what you spent on haircuts Clothing

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in car insurance alone last year What about eating Is

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that optional How about rent and like anything else Yeah

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you can't afford it So hopefully your parents haven't rented

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out your room yet So why is this thing called

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a crisis Haven't you been listening Because loans of magnitude

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Have continued to flow out of the various coffers that

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loan money to students and the ability to repay those

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loans is getting worse and worse and worse Well eventually

04:18

the system grinds to a halt with massive declines in

04:21

loans made and then what happens Riots What happens when

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students air simply denied the ability to go to college

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altogether What will they do Demand colleges drop tuition costs

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with colleges care colleges are going bankrupt too by the

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way and be nice if they could drop tuition costs

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But other than the top forty or fifty colleges around

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the country Well most schools of higher learning or just

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barely scraping by many you're committed to very high fixed

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recurring costs in the form of tenured professors they and

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not fire expensive building and land maintenance and insurance for

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you know creative student activity and so on someone and

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so on It all adds up such that tuition needs

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to remain high just to pay those bills and keep

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going Could the government step in and just like big

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mama pay all the bills Well your feelings about this

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issue will vary with your political alignment but that still

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doesn't solve the issue of rising costs which will keep

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on getting higher and higher And no matter who's footing

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the bill and why's it fair for the government to

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take money from high earners and give itto low earners

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for something like college that has unclear financial payback Is

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that fair What's our solution but we don't have one

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but it's not how shmoop rolls Our only advice is

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think long and hard when picking a college major and

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taking loans out for school That means keeping your hands

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off ebay and amazon and keeping your nose in the

05:39

books and look really hard at majoring in engineering or

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something Next time you meet a french literature major foreign 00:05:46.295 --> [endTime] coffee for you at starbucks

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